Nonresidential Construction Spending Falls 3.3 Percent in January

Summary
As further evidence that the nation’s construction industry continues to struggle, nonresidential construction spending fell 3.3 percent in January, with outlays decreasing to a seasonally adjusted annual rate of $572.1 billion, according to the March 1 report by the U.S. Census Bureau. Year over year, total nonresidential construction spending is up only 0.8 percent (unadjusted for inflation).

Both private and public nonresidential construction spending were down for the month. Private nonresidential construction spending fell 5.1 percent on a monthly basis, but is 4 percent higher compared to one year ago. Public nonresidential construction spending declined 1 percent in January and is 2.7 percent lower than January 2012.

Of the ten construction sectors experiencing declines in spending on a monthly basis, those posting the largest losses include power, down 12.4 percent; sewage and waste disposal, down 5.3 percent; lodging, down 5.1 percent; manufacturing, down 3 percent; and education-related construction, down 3 percent. Construction sectors recording the largest losses in spending on a year-over-year basis include public safety, down 13.1 percent; sewage and waste disposal, down 12.9 percent; religious, down 9.4 percent; and amusement and recreation, down 8.5 percent.

In contrast, six of the sixteen nonresidential construction sectors posted increases for the month, including communication, up 1.4 percent; religious, up 1.2 percent; highway and street, up 0.9 percent; commercial, up 0.7 percent; health care, up 0.7 percent; and transportation, up 0.3 percent. Of the six segments that posted spending increases in January, four increased less than1 percent. Six subsectors have registered increases in spending compared to the same time last year, including manufacturing, up 12.8 percent; transportation, up 12.5 percent; lodging, up 11.6 percent; office, up 9.1 percent; highway and street, up 4.2 percent; and commercial, up 2.1 percent.

Residential construction spending was virtually unchanged for the month, and is up 21.1 percent compared to the same time last year.

Total construction spending–which includes both nonresidential and residential spending–was down 2.1 percent for the month, but is up 7.1 percent compared to January 2012.

Analysis
“January’s construction spending decline was particularly alarming because the loss in momentum spread deep into privately financed categories,” said Associated Builders and Contractors Chief Economist Anirban Basu. “In previous months, decreased spending in a number of public spending-oriented sectors like sewage and waste disposal and public safety was roughly counter-balanced by increased spending in intensely private segments, such as power and manufacturing.
“That changed in January, with privately financed segments like power and manufacturing reversing course and experiencing substantial monthly declines in construction spending” said Basu. “The upshot is that nonresidential construction spending is virtually unchanged over the past year.

“With the U.S. economy still stumbling to find sustained momentum, there is little reason to expect meaningful acceleration in overall nonresidential construction spending anytime soon,” Basu stated. “In fact, it may be likely that public spending on construction will decline during the months ahead as automatic sequestration takes hold.

“This is not to suggest that there aren’t still bright spots in the U.S. economy,” said Basu. “Several financial markets have been flirting with all-time highs and the housing sector appears to be in the midst of a period of sustained recovery.

“The bottom line is that residential construction is positioned for continued expansion while nonresidential construction will continue to limp along,” said Basu.